"The tariff increase will reduce CGPL's financial losses and benefit Tata Power Company's (TPC) credit quality. CGPL is a material part of TPC group and its debt accounted for approximately 30 per cent of total consolidated debt as of 31 March 2013," Moody's Investors Service said.
Global rating agency Moody's today said CERC order on Mundra project would benefit Tata Power 's credit quality. The 4,000 MW Mundra project is being operated by Coastal Gujarat Power Ltd (CGPL), a wholly-owned subsidiary of Tata Power.
"The tariff increase will reduce CGPL's financial losses and benefit Tata Power Company's (TPC) credit quality. CGPL is a material part of TPC group and its debt accounted for approximately 30 per cent of total consolidated debt as of 31 March 2013," Moody's Investors Service said.
Also Read: CERC ruling to bring down Mundra project losses: Tata Power
Last Friday, India's central power industry regulator issued a tariff order granting CGPL, a tariff increase retroactive from April 1, 2013 to cover fuel costs. "Central Electricity Regulatory Commission (CERC) also ordered CGPL's customers to pay back losses that CGPL incurred in the fiscal year ended 31 March 2013, via 36 monthly instalments," it added.
The CERC has allowed a compensatory tariff of Rs 0.524 for every unit of power from Mundra plant. This tariff is for the period beyond April 1, 2013. It has also directed the procurer states to pay a compensation of Rs 329.45 crore for the period from April 1, 2012, to March 31, 2013. Electricity from Mundra project is supplied to Gujarat, Maharashtra, Rajasthan, Haryana and Punjab. The power purchase agreements with distribution companies (discoms) from these states is for selling electricity at a price of Rs 2.26 per unit.
Mundra project has been hurt by rise in price of Indonesian coal that is used to fire the plant. Moody's said the tariffs under CGPL's current power purchase agreements do not allow it to fully recover the cost of fuel and consequently have dragged on Tata Power's group performance.
"TPC took an Rs 18 billion (USD 331 million) impairment relating to its CGPL investment in fiscal 2012 and another impairment of Rs 8.5 billion (USD 156 million) in fiscal 2013," Moody's Investors Service said. According to the agency, CGPL can only partially pass through this coal-fired plant's fuel costs to customers, given the terms of the power purchase agreements. "Although the tariff structure for CGPL's power purchase agreements includes fixed and variable elements, only 45 percent of the variable portion relating to coal fuel costs can be passed on to customers," it added.
Tata Power stock price
On February 26, 2014, Tata Power Company closed at Rs 79.45, down Rs 1.5, or 1.85 percent. The 52-week high of the share was Rs 102.45 and the 52-week low was Rs 68.25.
The company's trailing 12-month (TTM) EPS was at Rs 4.51 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 17.62. The latest book value of the company is Rs 51.67 per share. At current value, the price-to-book value of the company is 1.54.
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